Manolete Partners Share Discussion Threads

[martindjzz] 30/1/2020 00:06

Hi Jonwig and xpert, MANO will be due the pre-agreed share of the £4.2m. My guess is that the case is item 19 on slide 16 (32 Cases with strong, visible completion prospects) of the shares presentation of 11th December. It will already be on the balance sheet as an unrealised asset, at a valuation determined by the Directors as guided by external counsel (per slide 14).

Now the company needs to turn the asset into cash and that depends on the ability of the defendant to pay up. Hopefully that was factored into the balance sheet valuation.

[jonwig] 29/1/2020 16:14

Thanks xpert - So who gets the £4.3m? We aren't told, of course, but if M had bought it (as per usual practice) presumably it's made a decent profit.

[williamcooper104] 27/1/2020 09:56

True increased deterrent may have an impact - will have to see - my gut feeling is that it won't - will be interesting to see what Mano say about it

[jonwig] 27/1/2020 06:33

William - are you sure? Maybe positive in the very short run, but if it improves the behaviour of directors, won't a part of Manolete's business dry up?

[williamcooper104] 27/1/2020 01:10

Has to be v positive for Mano

[williamcooper104] 27/1/2020 01:10

This sounds fun Court ruling keeps directors on the hook after prepack insolvencyhttps://www.thetimes.co.uk/article/court-ruling-keeps-directors-on-the-hook-after-prepack-insolvency-d28hwskzm

[jonwig] 02/1/2020 08:54

The current NAV - isn't it about 71p? Whilst I wouldn't use that as a measure to compare the share price with, its rate of growth might be. The trouble is that the number is distorted by the recent IPO funds and big expansion in investments, so it will be a while before we can get anything much from that.

Actually, the rate of NAV growth ought to be much the same as the rate of earnings growth (divis are negligible), so I'm going to stick with the bottom line and with eps.

Maybe the most interesting account is cashflow: cash fell from £9.7m to £3.1m between March and September through investing the IPO funds. I'd expect the cash pile to get topped-up by March.

[martindjzz] 30/12/2019 06:48

Hi Rjmahan, what NAV per share do you think would represent reasonable progress at the next financial year end? Also do you think that is the best valuation metric for MANO?

[rjmahan] 29/12/2019 18:52

Shouldnt we be looking at the growth in NAV or lack thereof ?

[stevevcjp] 23/12/2019 00:24

Martindjzz,

If by "accounting periods" you mean half yearly reporting, then that is absolutely correct imho

[martindjzz] 22/12/2019 21:19

Most cases span 2 or 3 accounting periods and the fair value analysis determines when revenues are recognised. My guess is that their Cost of Sales formula is designed to ensure that costs are matched to revenues on a consistent and reasonable basis. It will not be perfect and if we wanted to see the trends with less timing noise we could look at the numbers on say a rolling two year aggregate basis.

[stevevcjp] 22/12/2019 12:41

Correct.

Annual:

FY17: £3.8m
FY18: £6.8m (+79%)
FY19: £10.1m (+49%)

[jonwig] 22/12/2019 10:15

Thanks, so it might be better to expect gross margins to be more like 30% in H2. (Though again the same effect might happen with the new investments made in H2, making GMs somewhere between 30% and 90%!).

Actually, though, something puzzles me: I always assumed that the accrual principles in IFRS involved a 'matching concept':

The matching concept is an accounting practice whereby firms recognize revenues and their related expenses in the same accounting period. Firms report "revenues," that is, along with the "expenses" that brought them. The purpose of the matching concept is to avoid misstating earnings for a period.

[martindjzz] 22/12/2019 07:42

Jonwig, I think I can help a little with your puzzle point. The CFO defines cost of sales as QUOTE legal costs on realised cases, the initial payments made to Insolvent Estates on case investments (both purchased and funded) and payments to Insolvent Estates on successful realisations (the Insolvent Estate’s share of the realisation) of purchased cases. UNQUOTE. Put another way, a significant proportion of the unrealised revenues shown in the half year have no associated cost of sales. Those costs will apparently be recognised later when the revenue is recognised.

[jonwig] 22/12/2019 06:34

martin - thanks for the question (which I must admit to being slow to take up) and for sharing SC's response. Getting a prompt answer from the top is a positive sign anout the ethos of any company!

They say in the H1 results that they expect H2 to be stronger, and IC says Peel Hunt forecasts 17.8p for 2020 and 21.8p for 2021, but I'm puzzled at the low value of 'cost of sales' in the current H1.

IC says 'BUY - see #215.

[martindjzz] 22/12/2019 01:43

All, I also put my question directly to Steven Cooklin and received an impressively quick and helpful response as below.

QUOTE
The Vintages Table is the cash invested in the completed cases (predominantly legal fees) and excludes the Cartel cases. So this table gives an accurate reflection of cash out and cash in on completed cases. It also includes cash fees paid on live, uncompleted, cases (excluding all Cartel Cases) but no element of fair value is included in this table: cash only.
Whereas the Balance Sheet total is very different: that reflects the cash fees paid on all live (incomplete) cases PLUS the valuation of those live cases (about 140 live cases). The 20 Cartel cases only represent £6.2m of that Balance Sheet total.
So the balance sheet total works out at about £180k per live case.
Hope that answers your question. 
UNQUOTE

As a new boy I find this sort of responsiveness very encouraging.

[martindjzz] 21/12/2019 04:28

I bought into MANO for the first time last week, albeit at only half of my normal position size. The details of its operations provided by the company in its various shares presentations are re-assuring and should make it relatively easy for us all to monitor trends. One thing not yet clear to me is how the total balance sheet investments at 30th September 2019 of £25.4m relate to the total open case investments of £3.6m shown in the Vintages Table as of 7th November. Are they saying nearly £22m is invested in the Cartel Cases excluded from the Vintages Table?

[xpertgreeny] 20/12/2019 13:18

Self-made Manolete
Investor’s Chronicle
Alex Newman

Until this year, Burford Capital was one of the darlings of the UK stock market. Its litigation finance model was seemingly able to attract capital as easily as it could source, assess, fund and bank investments in legal cases. But that all changed in August, when a short report took aim at Burford's governance standards and accounting treatment of non-realised gains, spooking shareholders. For many, litigation funding and its heady promises of uncorrelated returns is now something to give a wide berth.

But a case for the defence is offered by fellow Aim litigation finance outfit Manolete Partners (MANO) - which funds or acquires smaller, less contentious and generally procedural insolvency claims.
The group's business model was honed over a decade before its public listing a year ago. Because it focuses only on litigation stemming from insolvencies, its average investment is a reassuringly short 11 months, which means shareholders do not have to wait all that long for "unrealised gain" to be realised. These cases are also highly profitable. In the six months to September, Manolete settled 18 of its cases at an average value of £135,556, for a 193 per cent average return on capital employed.

The longer-term track record is equally strong. For the years 2012 to 2016 (years during which the operation was at scale and all cases have been settled) the return on investment from the portfolio of cases invested in has ranged from 145 per cent to 167 per cent. Meanwhile, just two cases remain open from the 31 Manolete invested in in 2017, with ROI [return on investment] standing at 142 per cent as of the end of September.

Unlike Burford, Manolete has a much better idea when and how its cases will wrap up as it focuses on reaching settlements rather than taking cases to trial, which also helps to keep lawyers' fees on a tight leash. That also removes some of the uncertainty around the use of unrealised gains (that is, estimated increases in the fair value of a case), which Manolete is required to make under IFRS rules. The key finding of an internal review - that historical unrealised gains have been 34 per cent below the average actual realised gain - offers further encouragement that the accounting treatment is accurate.

It is also growing at a clip. Because a typical claim requires a limited amount of labour, and Manolete's network of insolvency practitioners provide a conveyer belt-like run of new cases. Chief executive Steven Cooklin says his team is accepting around a quarter of the two potential investments that "walk in each day". He added that significantly more profitable investments in several larger recent cases would not dissuade the group from buying claims where the expected return is below the current 2.9 times money multiple.

Manolete is the market leader and competition does not yet appear to be an issue. It also has plenty of room to grow, given that cash recoveries on the UK's 2,300 insolvency claims amount to around £500m each year. Meanwhile, broker Peel Hunt reckons changes in the rules around claimants' legal costs mean the field is ripe for third-party funding.

Manolete's shares are a third off their one-year high, likely owing ongoing nerves toward the sector, and the recent timing of settlements. The latter meant first-half revenues climbed just 15 per cent to £7.5m, of which £5.6m came from fair value movements, although as of September there were 32 live cases scheduled for resolution, trial or in settlement negotiations. Indeed, if Mr Cooklin is right, then Manolete is now funding over £20m of claims annually, on which it can expect a three-figure internal rate of return. That leaves earnings forecasts looking muted, as previous upgrades have already shown. Buy.

[xpertgreeny] 25/11/2019 19:44

Master Investor

Manolete Partners (LON:MANO)

The interim figures to end-September, for this leading insolvency litigation financing company, were announced on Thursday.

They showed an excellent rate of progress, with revenue up 15% to £7.5m, helping to generate a pre-tax profit 42% higher at £4.3m.

Earnings leapt 41% to 7.9p per share, while a first-time interim dividend of 0.5p per share was declared.

The group ended the first half with a totally unutilised £20m revolving credit facility from HSBC, although cash balances were £6.6m at £3.1m, while net assets were £2.9m higher at £30.9m.

Investment into new cases was up 110% at 65, compared with just 31 at the same time last year. In fact, that is more than the 61 the company handled for the whole of the previous year.

The company has now completed the development of its proprietary regional network, with dedicated in-house insolvency lawyers in every major region in the UK.

One of the key features of Manolete’s business model is that it takes on and deals with its cases fairly quickly, and the average completion time is 11 months. It also acquires the majority interest in its cases, instead of acting as a third-party to those cases.

I consider that this company has massive, wide-open potential in its market. It has the capability to take on and achieve success in its acquired caseload.

I met the boss Steven Cooklin earlier in January this year and it was my first featured profile stock in mid-February, with its shares then at 230p, at which time I set a target price of 300p being achieved by the end of next year.

Well, that was attained and bettered inside the following fortnight, at which time I then followed it up with an end month profile at 330p.

The shares have subsequently peaked at 620p, only falling back to 400p when Muddy Waters hit its international competitor Burford Capital, before bouncing back up to 530p earlier this week.

The shares are back down to trade around the 450p after the results, but they will be back higher very soon – just mark my words!

[xpertgreeny] 25/11/2019 14:17

This report from Investors Chronicle is better. And they move from Hold to Buy.

[jonwig] 25/11/2019 10:35

Thanks, but have the authors actually read anything from Manolete, eg. the accounts?

The whole point is that cases don't 'drag on': the average length is 11 months.
Operating and investment cash outflow may have been £5.8m, but cash plus receivables were £7.1m.

[xpertgreeny] 25/11/2019 09:23

The Mail tipped Manolete this weekend.

[jonwig] 21/11/2019 08:26

HY results:



Share price reaction will be based on what expectations were. But also there's the issue of fair value movements which may hold the shares back.